Research On Credit Risk Measurement Of Listed Corporate Bond In China Based On KMV Model

Corporate bond, as an important way for enterprises to gain direct financing,has attracted more and more attention in recent years. Since the issuance ofcorporate bond in2007, the issue size is growing, and the market has entered anunprecedented period of rapid development in the recent two years. At the sametime, the credit default risk of listed corporate bond is gradually exposed. InMarch2014, the default of "11Chaori Solar Bond" is the first one of thecorporate bond defaults in China. After that, more corporate bond defaults orsolvency crisis have burst and raised concerns. As an unmatured corporate bondmarket, how to effectively manage credit risk has become an urgent issue. This isnot only related to the healthy development of the corporate bond market, butalso related to the stability of the financial market and the economy.Credit risk measurement is an important part of the credit risk management.Credit risk measurement can effectively identify and control the credit defaultrisk. The method of the measurement of credit risk is the core of the credit riskmeasurement level. China’s corporate bond market is developing fast, but is lackof awareness for credit risk and management experience. Compared withdeveloped countries, the level of credit risk measurement is much behind;especially the traditional credit risk measurement methods have been unable tomeet the changing needs of today’s complex market. There is a new requirementfor the method of measurement for the credit risk of corporate, to select and applymore advanced modern credit risk measurement methods, and to apply to China’scorporate bond market. The KMV model, based on option pricing theory, is inline with the above requirements. There is not much research about KMV modelused to measure the credit risk of China’s listed corporate bond, especially interms of empirical research, and it has become the direction and focus of thisthesis.The specific research path is first to make basic analysis for the credit risk ofcorporate bond, including the features of corporate bond and the causes of credit risk; then examine the current situation of China’s corporate bond credit risk andthe problems of credit risk management.It is found that there is growingaccumulation of credit risk, the urgent need to strengthen the management ofcredit risk and improve the level of measurement and the method. So next thing isto sort out the traditional credit risk measurement methods and the modern creditrisk measurement methods widely used. By comparing the advantages anddisadvantages and applicability of them, KMV model is a more applicable andfeasible model for the current bond market of listed companies in China. On thisbasis, a KMV model is constructed, and some model parameters and metrics havebeen revised to be more suitable for China’s listed corporate bond market.In the empirical part,31samples of listed corporate bonds are selectedaccording to the credit rating of low-risk group, high-risk group and ST group.After collecting a lot of financial and stock market data, Excel and MATLABsoftware are used to calculate the parameters of the default distances of thesamples. Then SPSS software is used to do statistics description and significancetests, showing that the mean of default distance of the low-risk group issignificantly higher than that of the high-risk group, and the mean of defaultdistance of the high-risk group is significantly higher than that of the ST group,which means that the bigger the default distance is, the less likelihood of defaultis for the corporate bond; the smaller the default distance is, the more likelihoodof default is for the corporate bond, which is consistent with the theoreticalexpectations and reality. These results indicate that the default distance can beused as the metric for the credit risk of listed corporate bond, to distinct differentlevels of credit risk of listed corporate bond. The KMV model has validity andfeasibility to measure the credit risk of listed corporate bond, and serves as awarning to avoid credit default risk. Based on the above research, some relatedsuggestions are provided from the aspects of the institutions, technologies andhuman resources to enhance the measurement level for the credit risk of listedcorporate bond and to get a better credit risk management and prevention.